Rev. Rul. 82-200

ISSUE

The Internal Revenue Service has reconsidered Rev. Rul. 67-88, 1967-1 C.B. 289, which holds that when both a regular amount of wages and a supplemental amount are contained in a single payment, the employer is not entitled to use the flat 20 percent rate applicable to supplemental wages. Pursuant to that revenue ruling, the supplemental wages must be aggregated with the regular wages, and the amount of tax to be withheld must be determined under the standard wage bracket or percentage method.

LAW AND ANALYSIS

Under section 31.3402(g)-1(a) of the Employment Tax Regulations, in the case of supplemental wages, such as bonuses, commissions, and overtime pay, paid in addition to regular wages, when the employer has withheld tax from the regular wages, the employer may determine the tax to be withheld from the supplemental wages by using a flat percentage rate of 20 percent, without taking into consideration of the amount of regular wages or the withholding allowances claimed on the employee's Form W-4, Employee's Withholding Allowance Certificate.

If both supplemental and the regular wages are combined in one payment and the employer specifically indicates each amount on its payroll records, there is no substantial difference between paying the amounts in one combined check or in two separate checks. See, for example, section 31.3401(a)-1(b)(2) of the regulations, which allows employers to combine both wages and travel expense allowances in one payment and to specifically indicate the amount of each, in order for the travel allowances to be excluded from wages for purposes of income tax withholding.

HOLDING

An employer that combines regular wages subject to withholding and supplemental wages in a single payment and that specifically indicates the amount of each, may withhold federal income tax at a flat 20 percent rate on the portion of the payment representing supplemental wages, if tax is withheld on the portion of the payment representing the employee's regular wages at the appropriate rate.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 67-88 is revoked.